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Japanese Yen remains pinned near 40-year low as Fed-BoJ rate gap keeps carry trade active

  • USD/JPY consolidates the previous day’s strong gains amid looming intervention risks.
  • The wide US-Japan rate differential holds back the JPY bulls from placing aggressive bets.
  • US-Iran tensions and Fed rate hike expectations favor USD bulls, supporting spot prices.

The USD/JPY pair edges lower on Friday as bulls turn cautious in anticipation of a potential government intervention to prop up the Japanese Yen (JPY). Nevertheless, spot prices remain within striking distance of the four-decade high, touched on Thursday, and the 164.00 mark amid a supportive fundamental backdrop.

A stark contrast in monetary policy between Japan and the rest of the world keeps the so-called carry trade active, which might continue to undermine the JPY. Despite the recent Bank of Japan (BoJ) rate hike to 1%, or the highest since 1995, borrowing costs in Japan remain exceptionally low relative to other major economies, including the US. Furthermore, economic risks stemming from energy supply disruptions due to the Middle East conflict contributed to the JPY’s relative underperformance.

The US military announced that it has completed another round of strikes against Iran on Thursday, marking the 13th straight night of operations. Meanwhile, Iran and its allies launched retaliatory strikes against US-linked military assets in Kuwait, Bahrain and Jordan. Adding to this, Iran-aligned Houthis extended the Middle East war to a second major shipping chokepoint and struck two Saudi oil tankers in the Red Sea, describing the action as part of a naval blockade against Saudi Arabia.

This comes on top of the closure of the Strait of Hormuz and further exacerbates supply disruption concerns, lifting crude oil prices to a fresh high since June 11 on Thursday. Investors remain worried that elevated energy prices will rekindle inflationary pressure and force major central banks, including the US Federal Reserve (Fed), to adopt a more hawkish stance. Moreover, data showed on Thursday that US Jobless Claims fell to the lowest level since September 1969, pointing to a resilient labor market.

This reaffirmed market expectations that the US central bank will raise borrowing costs by the end of this year, which favors the US Dollar (USD) bulls and backs the case for the emergence of dip-buying around the USD/JPY pair. Traders, however, seem hesitant and opt to move to the sidelines ahead of the highly anticipated FOMC policy meeting next week. Nevertheless, spot prices remain on track to register strong weekly gains for the third straight week and seem poised to climb further.

Japanese Yen Price This week

The table below shows the percentage change of Japanese Yen (JPY) against listed major currencies this week. Japanese Yen was the strongest against the Swiss Franc.

USDEURGBPJPYCADAUDNZDCHF
USD0.39%0.99%0.87%0.45%-0.33%0.83%0.99%
EUR-0.39%0.61%0.43%0.06%-0.71%0.44%0.59%
GBP-0.99%-0.61%-0.17%-0.54%-1.30%-0.16%0.03%
JPY-0.87%-0.43%0.17%-0.32%-1.14%-0.09%0.22%
CAD-0.45%-0.06%0.54%0.32%-0.74%0.24%0.58%
AUD0.33%0.71%1.30%1.14%0.74%1.16%1.35%
NZD-0.83%-0.44%0.16%0.09%-0.24%-1.16%0.20%
CHF-0.99%-0.59%-0.03%-0.22%-0.58%-1.35%-0.20%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Japanese Yen from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent JPY (base)/USD (quote).

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Japanese Yen flatlines near multi-decade low after CPI inflation data

  • USD/JPY steadies around 163.90 in Friday’s early Asian session. 
  • Japanese CPI inflation rose to 1.7% YoY in June from 1.5% in May. 
  • Trump vowed to punish Iran for Houthi attacks in the Red Sea. 

The USD/JPY pair holds steady near 163.90 during the early Asian session on Friday. However, the Japanese Yen (JPY) remains near a multi-decade low against the US Dollar (USD). The preliminary readings of the US S&P Global Purchasing Managers Index (PMI) will be published later on Friday. 

Data released by the Japan Statistics Bureau on Friday showed that Japan’s National Consumer Price Index (CPI) inflation rose to 1.7% YoY in June, up from 1.5% in May. Meanwhile, the core CPI came in at 1.6% YoY in June, versus 1.4% prior. The figure came in line with the market consensus. This is the first rise in core inflation since March.

The so-called “core-core” inflation rate, which strips out prices of fresh food and energy, fell to 1.7% YoY in June, compared to the previous reading of 1.8%. This figure registered the lowest since August 2022.

This reading came just days before the Bank of Japan (BoJ) policy meeting, where the central bank is widely expected to leave interest rates unchanged. Japan’s National CPI inflation report has little to no impact on the JPY as traders are on high alert for possible intervention from Japanese authorities. 

Finance Minister Satsuki Katayama on Wednesday warned markets that authorities stood ready to take “appropriate and bold action.” Katayama added that Japan’s policy on potential intervention remained unchanged and that it would take action if necessary.

Escalating tensions in the Middle East could boost the Greenback against the JPY in the near term. Reuters reported on Thursday that US President Donald Trump said the US would hold Iran responsible for the Houthis’ actions and warned Iran and its Houthi allies would both soon receive a “major military punishment.”

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Chart of The Day – No changes in the Far East, USD/JPY Hits New Highs

USD/JPY is breaking out to new 40-year highs above 163.30 , and the market is signalling that the acceleration in the pace of the BOJ’s rate rises is already largely priced in.

Traffic conditions on the D1

The price has broken through the previous resistance level of 163.00 (purple line) and is reaching new highs in the 163.30–163.40 range, whilst the RSI (14) remains in a strong uptrend at around 69.4, close to the overbought zone. The candlesticks are holding above the EMA50 (161.32), EMA100 (160.13) and EMA200 (158.12), and the EMA configuration (rising, in the order 50 > 100 > 200) confirms a strong bullish trend. The price is close to the upper Bollinger Band (163.92), which signals strong momentum but also the risk of a short-term correction before the next attempt to break through the resistance at 164.00.

Why do the markets already price in faster BOJ rate rises?

The OIS (overnight index swap) market for 22 July 2026 implies a rate of 0.981 per cent, compared with an effective rate of 0.977 per cent, whilst contracts up to the 18 December meeting are already pricing in a rise to 1.277 per cent – effectively discounting approximately 1.2 rate rises in full. This means that reports of the BOJ’s readiness to accelerate the pace of rate rises come as no surprise to the market – investors began pricing in a more aggressive cycle well ahead of the consensus among economists.

This is also confirmed by the table of 1-month price changes: the cumulative change (“Total Change 1M”) for Japan is zero, which indicates that the market is no longer revising its forecasts upwards, but is instead stabilising following the earlier movement – the “faster pace” is, to a large extent, already behind us in terms of prices. Source: Bloomberg Financial LP

Carry trade remains dominant despite rate rises

The interest rate differential between Japan (1.00%, following a rise to a 31-year high) and the effective US rate (3.63%) remains huge, and the two-year US-Japan yield spread has widened to 285 basis points – its widest level since August last year. Even a potential further 25 bp rate rise would do little to reduce the appeal of this spread, which is fuelling carry trades based on the low cost of yen-denominated financing relative to high-yielding currencies such as the BRL, MXN and AUD.

The fundamental ‘loop’ driving the yen’s weakness

Apart from monetary policy, the yen is suffering from a ‘doom loop’ – Prime Minister Sanae Takaichi’s loose fiscal policy (debt-to-GDP ratio over 200 per cent) combined with the BOJ’s insufficiently tight monetary policy, which is pushing the yield on 10-year JGBs up to 2.90 per cent, the highest level in 30 years. Finance Minister Satsuki Katayama has once again signalled her readiness to take “decisive action” in the foreign exchange market, however, interventions to date (totalling around US$215 billion since 2022) have failed to reverse the trend of yen weakness on a sustained basis, which undermines the credibility of such announcements in the eyes of investors.

The options market confirms that there are no fears of a shock

The falling 1-month ATM implied volatility for USD/JPY since 2022, despite the deepening weakness in the spot market, suggests that options are not pricing in any significant risk of a sudden reversal – such as a sharp intervention or an unexpected rate hike – but rather a continuation of the current narrative regarding the currency. Source: Bloomberg Financial Lp

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Trade of The Day – GBP/JPY

Facts:

  • The bounced off the lower limit of 1:1 structure at 217.52
  • Main trend on the pair remains upward

Recommendation: Trade: Long GBPJPY at market price Target: 220.16 Stop: 216.92

Opinion: Looking at GBPJPY chart, one can observe that the price reached the key technical support on Tuesday. This support is marked with the lower limit of 1:1 structure (green rectangles), as well as previous price reactions. In addition the price sits above the 100-period moving average from the H4 interval. Should buyers manage to hold the price above the support area 217.52-217.80, another upward impulse may be on the cards. We recommend taking a long position on GBPJPY at market price with two targets: 215.85 and 216.30 We recommend placing a stop loss order at 216.92

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Japan Signals Readiness to Act on Yen Weakness

Japan’s Finance Minister Satsuki Katayama said on Wednesday that the government remains prepared to intervene in currency markets if excessive exchange-rate moves threaten financial stability, after the yen weakened beyond JPY 163 per U.S. dollar to its lowest level in about 40 years. Speaking to reporters, Katayama declined to comment on specific exchange-rate levels but reiterated that authorities stand ready to act if necessary. The remarks reinforce the government’s long-standing position of closely monitoring currency movements and signal that policymakers remain willing to step into the foreign-exchange market should volatility become excessive, even as they avoid specifying a level that could trigger intervention.

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EUR/JPY Price Forecast: Tests ascending triangle top above 186.00

  • EUR/JPY is testing the ascending triangle’s upper boundary near 186.20.
  • The 14-day Relative Strength Index at 57.48 suggests constructive but not overbought momentum.
  • The initial support lies at the nine-day EMA at 185.66.

EUR/JPY extends its gains for the second successive day, trading around 186.20 during the Asian hours on Wednesday. The currency cross is retaining a bullish near-term bias as it holds above both the nine-period and 50-period Exponential Moving Averages (EMAs).

The 14-day Relative Strength Index (RSI) at 57.48 suggests constructive but not overbought momentum, reinforcing the scope for further gains as long as price stays above the nearby EMA band.

The daily chart technical analysis shows the currency cross is testing the upper boundary of the ascending triangle around 186.20, suggesting growing bullish momentum and a potential breakout to the upside. A decisive break above the triangle could trigger a powerful bullish continuation, which could expose the all-time high of 187.95, which was recorded on April 17.

On the downside, primary support sits at the nine-day EMA of 185.66, with additional backing at the 50-day EMA of 185.18 and the lower edge of the ascending triangle near 185.10. A sustained break below the triangle pattern would undermine the bullish setup, exposing the EUR/JPY cross to deeper downside toward the five-month low of 181.87, recorded on March 16, and the seven-month low of 180.81.

Chart Analysis EUR/JPY

Euro Price Today

The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the Japanese Yen.

USDEURGBPJPYCADAUDNZDCHF
USD-0.07%-0.07%-0.03%-0.02%-0.05%-0.06%-0.00%
EUR0.07%0.00%0.07%0.05%0.00%0.03%0.07%
GBP0.07%-0.01%0.04%0.05%-0.00%0.01%0.06%
JPY0.03%-0.07%-0.04%0.00%-0.02%-0.04%0.03%
CAD0.02%-0.05%-0.05%-0.01%-0.03%0.02%0.02%
AUD0.05%-0.01%0.00%0.02%0.03%0.02%0.05%
NZD0.06%-0.03%-0.01%0.04%-0.02%-0.02%0.03%
CHF0.00%-0.07%-0.06%-0.03%-0.02%-0.05%-0.03%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).

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EUR/JPY Price Forecast: Holds gains above 185.50 near nine-day EMA support

  • EUR/JPY may rise toward the ascending triangle’s upper boundary near 186.10.
  • The 14-day Relative Strength Index is around 53 and signals steady momentum.
  • The initial support lies at the nine-day EMA at 185.46.

EUR/JPY edges higher after three days of losses, trading around 185.50 during the Asian hours on Tuesday. The currency cross is holding above both the nine-day and 50-day Exponential Moving Averages (EMAs), which reinforces a mildly bullish near-term bias.

The EUR/JPY cross is pressing into the upper end of its recent range while the 14-day Relative Strength Index (RSI) around 53 suggests constructive but not overstretched momentum. The daily chart technical analysis shows the currency cross is remaining within the ascending triangle, signalling aggressive buying pressure.

The EUR/JPY cross may find the initial resistance at the triangle’s upper boundary around 186.10. A decisive break above the triangle could trigger a powerful bullish continuation, which could expose the all-time high of 187.95, which was recorded on April 17.

On the downside, immediate support sits at the nine-day EMA of 185.46, with additional backing at the 50-day EMA of 185.12 and the lower edge of the ascending triangle near 185.00. A breakdown below the triangle pattern would undermine the bullish setup, exposing the EUR/JPY cross to deeper downside toward the March 16 five-month low of 181.87 and the seven-month low of 180.81.

Chart Analysis EUR/JPY
EUR/JPY: Daily Chart

Euro Price Today

The table below shows the percentage change of Euro (EUR) against listed major currencies today. Euro was the strongest against the Japanese Yen.

USDEURGBPJPYCADAUDNZDCHF
USD-0.04%-0.08%0.00%-0.01%-0.16%-0.41%0.00%
EUR0.04%-0.04%0.06%0.03%-0.10%-0.37%0.04%
GBP0.08%0.04%0.11%0.08%-0.05%-0.33%0.09%
JPY0.00%-0.06%-0.11%-0.01%-0.15%-0.43%0.00%
CAD0.00%-0.03%-0.08%0.01%-0.14%-0.40%0.01%
AUD0.16%0.10%0.05%0.15%0.14%-0.27%0.14%
NZD0.41%0.37%0.33%0.43%0.40%0.27%0.41%
CHF-0.01%-0.04%-0.09%-0.00%-0.01%-0.14%-0.41%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent EUR (base)/USD (quote).

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Japanese Yen consolidates against US Dollar amid uncertainty over future of Middle East

  • The Japanese Yen trades calmly around 162.50 against the US Dollar amid uncertainty over the future of the Middle East.
  • US President Trump will either accept a 10-day ceasefire or call for a joint full-scale military campaign against Iran.
  • Investors await the Japan National CPI data for June.

The Japanese Yen (JPY) trades flat against the US Dollar (USD) at around 162.50 during the Asian trading session on Tuesday, closer to its multi-decade high of 162.84. The USD/JPY pair will likely remain sideways as investors seek fresh cues regarding whether the United States (US) and Iran will announce a ceasefire or will continue exchanging attacks.

In the Asian trade, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades flat around 101.00.

According to a report from Axios, US President Donald Trump will either accept the 10-day ceasefire with Iran and resume negotiations towards an interim deal or call for a joint full-scale military campaign with Israel against Iran.

On Monday, a senior Iranian official confirmed receiving a proposal for a 10-day ceasefire from mediators to resume talks on an interim deal.

On the domestic front, investors await Japan’s National Consumer Price Index (CPI) data for June, which will be released on Friday. Investors will pay close attention to the inflation data to get cues regarding the Bank of Japan’s (BoJ) monetary policy outlook. The National CPI ex. Fresh Food is expected to arrive at 1.6% Year-on-Year (YoY), higher than 1.4% in May.

Meanwhile, the next key trigger for the US Dollar will be the preliminary S&P Global PMI data for July, which will be released on Thursday.